First, we will briefly recall the different preferential tax treatments for gifts made by individuals (1) and entities (2) and as regards registration duties (3). Then, we will expose the conditions to be fulfilled by the French taxpayers in order to benefit from these preferential treatments when they make donations to foreign organisms (4).
1. Tax allowances for individuals
1.1 If several conditions are met, gifts made to certain organisms (e.g. public interest entities, associations and foundations of public utility) may permit to the donor to benefit from an income tax reduction of generally 66% of the amount paid during the relevant taxation year, within the limit of 20% of the taxable income. When the donations exceed this limit, the excess is carried successively over the following five years. The donations in cash or in kind or those in the form of foregone revenue are in particular eligible to the tax reduction.
1.2 Gifts of money or gifts of unrestricted property in freehold title companies traded on a regulated market, realized to certain organisms (as foundations of public utility) between the wealth tax declaration deadline of the year prior to the taxation and the declaration deadline of the taxable year may, under certain conditions, benefit from a reduction in the wealth tax equal to 75% of the amount of the gift. The maximum reduction shall be limited to € 50,000 per year, reduced to € 45,000 for the taxpayers concurrently seeking the wealth tax reduction for donations and the wealth tax reduction for investments in SME’s. The fraction of the donation leading to the wealth tax reduction cannot give the right to benefit from the wealth tax reduction for investments in SME’s or from the income tax reduction for gift.
2. Tax allowances for companies
Companies may benefit from a corporate income tax reduction equal to 60% of the donations made to certain organisms as charities or entities of general interest having a specific nature (social, educational, humanitarian, etc. ….). The gifts can be made in cash (including the income waivers) or in kind, provided that the donating company is able to price the donated good. They may take the form of provision of staff too.
The payments are retained within the limit of five per thousand of the donor’s turnover. However, when this limit is excessed, the excess is carried successively over the five following tax years.
3. Tax allowances as regards registration fees
Articles 794 and 795 of the FTC provide for an exemption of registration fees on liberalities made (by donation or, in certain cases, by inheritances) to charities, foundations, associations, public entities, etc., specifically identified by these provisions.
4. Donations to foreign organisms
4.1 The third Amending Finance Law for 2009 (“AFL 2009”) has extended the scope of the preferential tax regime exposed above regarding the personal income tax (1.1), the corporate income tax (2) and the wealth tax (1.2) to the entities having their registered office in a Member State of the European Union, in Norway, Iceland or Liechtenstein. The same extension of preferential tax treatment regarding registration fees (3) applies to donations declared or indicated in an authentic act and to successions beginning on December 31, 2014.
For this purpose, the relevant foreign organisms must pursue similar goals and have similar characteristics, both in form and in purpose, than those of eligible organisms having their registered office in France.
4.2 For now, the French tax administration (“FTA”) only published, at the beginning of the year 2012, a draft instruction in order to comment the new legislative provisions. In this project of instruction, the FTA still consider that the benefit of the preferential tax treatments is subject to the exercise by the foreign organism of an activity in France, tempering this condition only regarding humanitarian action and promotion of France abroad.
However, beside the fact that this draft administrative instruction is not included in the doctrine of the FTA (BOFIP since September 12, 2012), it seems to us that this position contravenes the ECJ’s decision above-mentioned and the provisions of the FTC resulting from the AFL 2009. A report on the rules of territoriality for application of the patronage tax regime (called “Bachelier report”), published in February 2013, also offers to put aside the condition for the exercise of an activity in France.
4.3 In any case, the organisms receiving donations have to be accredited under the conditions provided by Article 1649 nonies of the FTC in order to permit to the donors to benefit from tax allowances.
The application for accreditation must be submitted by the foreign organism on plain paper, in French, in accordance with a model set by a ministerial decision. This application has to be submitted to the legal service of the tax department of the French General Directorate of Public Finances prior to any donation.
The accreditation is given for a period from the date of its notification to the organism to the 31 December of the third year following this date. The accreditation may, on request, be renewed for a new period of three years running from 1 January following the last year covered by the approval.
4.4 When a gift is made to a foreign organism which did not present an application for accreditation, the tax reduction obtained by the donor is in principle called into question. However, the taxpayer (individual or company) may provide to the French tax administration, before the deadline to provide its statement, supporting documents testifying that the beneficiary entity of the donations pursue similar goals and have similar characteristics than those of eligible organisms having their registered office in France.
For now, only six foreign entities appear on the list of the approved foreign organisms on the FTA website. We hope it could grow in a close future.